At a recent meeting between the finance ministers of the G7 Group and the governors of the central bank, digital currency supervision was put on the agenda. Ministers from seven countries called for strengthening the regulation and legislation of cryptocurrency, as more and more institutional investors and retail investors are entering this emerging market.
At a recent meeting between the finance ministers of the G7 Group and the governors of the central bank, digital currency supervision was put on the agenda. Ministers from seven countries called for strengthening the regulation and legislation of cryptocurrency, as more and more institutional investors and retail investors are entering this emerging market.
“As virtual assets, digital assets are now being valued by more and more large institutions and national governments. I think anything that can be valued should be regarded as an asset, whether it is tangible or intangible. Since it is an asset, then There should be relevant laws and regulations to protect its ownership, use rights, etc., and regulate its ownership and use of property rights.” Zhou Xinjian, a senior researcher at Molian Technology, said to Lianxin.
Cryptocurrency regulation is imminent
In recent years, criminal cases related to digital assets have occurred frequently, and supervision is imminent. Zhou Xinjian, a senior researcher at MoChain Technology, started with the three major participants in the digital asset ecosystem and analyzed the investment risks and illegal behaviors of the digital currency industry:
In terms of projects, especially in the past few years, there have been few projects under the blockchain name that started to swindle money from the private placement stage. After some air projects have integrated private equity funds, they then issue air coins on the exchange to pull the assets after harvest. Prices quickly returned to zero, making retail investors lose their money. In addition, there are some projects with good ideas that package the projects well, but there is no team behind them to support the project development. As a result, the price of digital assets cannot receive technical support, which causes investors to lose money.
In terms of exchanges, some exchanges do not have equivalent digital asset reserves. Investors quickly ran away after entering the market, causing losses to investors. At the same time, some exchanges do not meet the technical security standards, and their digital assets are stolen after being attacked by hackers.
As for investors, many institutions are now controlling the market, and it is common for retail investors to be cut by market makers.
Zhou Xinjian believes that digital currency is the product of the public chain’s incentive mechanism. Since the various benefits of public chain including distributed technology cannot be avoided, then we should consider how to balance technological progress and parallel risks. “If the digital asset is a kite, then supervision is to hold the line of the kite. A kite without a line does not fly high, and the length of the line should be adjusted according to the market situation and the flying performance of the kite. After new things come out Governments of various countries are still in the process of exploring, and they need to keep trial and error within a certain framework to find the most suitable model.”
Public information shows that as early as 2014, FATF issued a report “Virtual Currency: Key Definitions and Potential Anti-Money Laundering (AML)/Counter-Terrorism Financing (CFT) Risks”, which assessed the role of virtual currency in anti-money laundering/anti-terrorism The potential risks in financing, and the cases of money laundering with virtual currencies by Liberty Reserve, Silk Road, and Western Express International are examples to illustrate that law enforcement actions should be taken.
FATF is the abbreviation of Financial Action Task Force on Money Laundering (Anti-Money Laundering Financial Action Task Force). It is an intergovernmental international organization established by the G7 Group to study the hazards of money laundering, prevent money laundering, and coordinate international anti-money laundering actions. One of the most authoritative international organizations in the field of money laundering and counter-terrorism financing.
“Britain, the United States and other developed countries have gone through a process of exploration on the issue of how to regulate the blockchain, and the experience and lessons can be used for reference.” Beijing Tiande Technology CEO, Shandong Province Blockchain and Digital Economy Research Director Deng Enyan told “Lianxin”.
Deng Enyan believes that international digital asset supervision is undergoing tremendous changes. China needs to actively discuss and formulate anti-money laundering standards for digital assets, which are compatible with national conditions and international standards. “In the realization of the anti-money laundering system, it integrates smart contracts, blockchain data lakes, machine learning and other high-tech technologies to achieve penetrating supervision and occupy the world’s highest level of supervision technology.”
How stable coins are truly “stable”
Although stablecoins are currently only adopted on a small scale, they may be used on a large scale globally in the future, especially if they are sponsored by large technology, telecommunications or financial companies. Like any other large-scale value transfer system, this trend of large-scale applications makes it attractive to criminals and terrorists, especially in money laundering crime and terrorist financing. It is reported that there are currently nearly a hundred stablecoin projects in the world.
“Like Facebook, JP Morgan Chase, Goldman Sachs, and some other major U.S. banks, the cryptocurrencies they develop are all stablecoins,” said Enyan Deng. The so-called stable currency, as the name implies, refers to a currency that remains relatively stable when the currency price is measured using a mainstream legal currency. If a digital currency asset wants to maintain a stable value, it first needs to determine the anchor to which it is linked.
According to Deng Enyan, there are currently three main types of stablecoins: fiat currency reserve-backed stablecoins, excess asset mortgage stablecoins, and algorithmic central bank stablecoins.
“The first type of stable currency, such as Libra, is anchored one-to-one with the U.S. dollar, and there is no leverage. This is stable; the second type of stable currency is anchored to company assets. Its value evaluation is not user consensus, but Based on the evaluation by a qualified third-party organization, this is also stable; the third type of stable currency is protected by algorithms. For example, various countries have different algorithms to protect their currencies, which are linked to the U.S. dollar and oil.”
As an important innovation in the financial industry, the advent of stablecoins is changing the country’s currency regulatory policies, commercial and economic activities, and all aspects of people’s life and consumption behavior. It should be noted that the issuance of stablecoins will also risk malicious over-issuance or misappropriation.
Especially in excess asset mortgage stablecoins, the idea comes from the margin system. However, the price of the currency used for mortgage usually fluctuates rapidly, and when the volatility increases, it often happens that the user is too late to cover the position and is forced to liquidate. Therefore, “stable coins” based on digital tokens (such as Bitcoin) are not real stable coins.
In fact, some projects that claim to be stablecoins, such as USDT, have opaque accounting books. The market has always doubted such projects. The doubts have never stopped, including whether the US dollar reserves are sufficient, whether the issuance of air currency causes a bubble, and whether the mortgage of US dollars has been Misappropriation, guarding and self-theft, the company’s management team’s big sales caused stable currency prices to plummet, causing losses to customers, and difficulties in realizing legal currency withdrawals.
In October 2019, the G20 Group requested the FATF to conduct research on stablecoin-related anti-money laundering and anti-terrorist financing issues. On July 7, 2020, the FATF submitted a special report on the above issues (FATF Report to the G20 Finance Ministers and Central Bank Governors on So-called Stablecoins), and at the same time released the implementation of revised standards for virtual currencies and their service providers Review report.
“Stable coins must be stable and must comply with the principles and standards of government supervision, otherwise they will become a tool for cutting leeks.” Deng Enyan believes that stable coins can be anchored in various ways to support assets, including legal currency and traditional assets. (Such as national debt); the value of the assets anchored by the stable currency should be stable, with a small fluctuation range; the stable currency and the anchor should maintain a stable ratio. Most of the existing digital currency models first choose 1:1 The exchange rate is anchored to the US dollar or other traditional assets (treasury bonds, etc.).
Blockchain supervision requires consensus
Zhou Xinjian believes that the immutable characteristics of blockchain technology and the smart type that can be implanted into smart contracts give blockchain technology a natural advantage in tracking digital asset transfer paths, finding suspicious accounts, and formulating transaction maps. “Now some relatively high-quality digital asset exchanges have actually begun to have relatively mature solutions in KYC and on-chain tracking. This is not about shooting yourself in the foot, but self-discipline to make it free.”
“For regulators, it is necessary to cooperate with the most cutting-edge technologies, and to understand and absorb them. This is a huge challenge.” Deng Enyan told Lianxin.
Wang Fenghe, director of the Finance and Internet Legal Affairs Department of Beijing Yingke Law Firm, said to Lianxin that there are two major challenges in the establishment of blockchain anti-money laundering standards: The first challenge is how to form a blockchain technical consensus. “Blockchain is an emerging technology, which has certain technical thresholds. At present, the technology industry and the legal community have different understandings of blockchain technology. Therefore, the supervision of blockchain needs to be at the national level, industry level, and Reach a consensus on the technical level.”
Another challenge is how to carry out effective social publicity to practitioners of blockchain technology, “especially to make network technical engineers realize that the Internet is not a no-man’s land, and there are also legal prohibited areas on the Internet.”
Wang Fenghe believes that in anti-money laundering using blockchain technology, we must first have preventive measures, and secondly monitor, accurately identify suspicious identities, check the deposit of transaction records and suspicious transactions, and finally check possible money laundering. Behaviors are processed.
“Now the methods of international crimes are constantly evolving, and the technical methods are diversified, becoming more and more concealed, and traditional methods are not easy to detect. According to the latest cross-border supervision thinking, technology must be supervised by technology, so it is necessary to establish a blockchain-based main network or In the main chain, it is necessary to reserve interfaces or nodes to connect these nodes to financial institutions, state foreign exchange regulatory authorities, and relevant judicial departments.” Wang Fenghe said.
Wang Fenghe believes that under the construction of a blockchain system, regulatory authorities need to establish relevant mechanisms so that the identity information of financial customers can be accurately identified from the chain in different places or foreign countries, and the transaction data is recorded. Every transaction is A credible time stamp is automatically formed. For suspicious transactions, it is necessary to add a code to mark the identity of the trader, such as dyeing its blockchain address, so as to identify the identity of the suspicious transaction. In addition, hierarchical warnings such as red, yellow, gray, blue, and green can be established to improve the establishment of a reporting system and emergency handling mechanism for large-value transactions with suspicious identities.
“The global digital currency trend has taken shape. As far as the current cross-border supervision of encrypted digital currency is concerned, we still have a lot of work to do, and the supervision of digital currency must also form a consensus.” Wang Fenghe said.
